ooohhhhh a whole lot of issues here...
OK possible POD. In the OTL the ALP governments of Curtin &, to a lessor extent, Chifley did have a de facto policy, especially in the immediate aftermath of WWII, to carve out an empire in the Pacific & South-East Asia region. This would be administered in partnership with NZ. There is no particular list of territories, but various part of Indonesia would have been included along with New Guinea, East Timor, & various islands possibly including Fiji. But, with the death of Curtin, along with Chifley's domestic policy failures, any thoughts of such an empire were soon forgotten.
As for Australian soils - the problem isn't that they are poor. The real problem has been the poor selection of crops planted here. Australia, generally, has soil with low levels of phospherous. Yet farmers, until some 25 years ago, were ignorant of this fact. So traditional European cash crops, like wheat, barley, etc, have been grown but large amounts of fertiliser has always been required leading to very poor land management. Hence we get this Australia's soil is poor routine. What was always really required were crops that don't need large amounts of phospherous &/or can be adopted with better farming management practices. Needless to say, this has been a priority for the last 20 - 30 years, not to mention some introduced cash crops, like rice, cotton, grapes, have been successful.
As for population levels - yes it is linked with water sources, but Australia has, until resently, wasted these water resources at criminal levels to be quite frank. Plus we're extremely reluctant to use recycled water, whilst many other nations, including European ones, use this practice all the time. We've also become extremely reluctant to develop new water resources, in other words dams & irriation systems (regardless they be hi-tech), because the environmental lobby groups here go apeshit & local communities don't want it in their backyard. Needless to say, this effects voting patterns & governments wish to avoid being thrown out of office. But if better water management took place, along with a signifcant increase in water infrastructure, Australia wouldn't have water shortages even if we're the driest country on the planet. Consequentially, I'd dare say a population level that's double that of our current one of 21 million, could comfortably live in Australia enjoying the same standard of living as is currently the case. And that's not including the usage of any desalination plants.